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Investing in Blue Chip Stocks

Updated: Jan. 5, 2021, 5:03 p.m.

Blue chip stocks are the stocks of well-known, high-quality companies that are leaders in their industries. These companies have stood the test of time and gained the respect of their customers and their shareholders.

Blue chip companies often make regular and growing dividend payments. With solid business models, blue chip stocks have produced long records of attractive returns, and that's made them among the most popular individual stocks in the stock market for conservative investors looking for places to put their money to work.

So, in short, what are blue chip stocks? A blue chip stock is defined as a security that represents an equity position in a company that possesses most of the following characteristics:

  • An industry leader with a dependable business model
  • A proven track record and strong reputation with consumers and shareholders
  • A history of delivering strong returns over the long term
  • Pays dividends to shareholders and regularly increases its payouts

Best blue chip stocks

Even if you've never invested, you'll recognize the names of many top blue chip stocks. The products and services provided by these large-cap companies are part of everyday life for billions of people across the globe. These are some of the best blue chip companies on the market:

1. Apple

Apple (NASDAQ:AAPL) is one of the largest companies in the world, and it's been a pioneer in the technology sector throughout its history. With an array of products from its innovative Macintosh computers in the 1980s and the iPod portable media player in 2001 to its ubiquitous iPhones, iPads, and Apple Watches today, Apple has won a core following of customers around the world who flock to buy its latest products.

Apple also earns recurring revenue through its services, which include its groundbreaking iTunes, App Store, and streaming television businesses. Apple's market capitalization climbed above the $1 trillion mark in 2018, and it's still growing.

2. Berkshire Hathaway

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is a major player in the insurance industry, offering various lines of commercial and personal insurance through subsidiaries like GEICO and Gen Re. But Berkshire owns a diverse set of businesses, ranging from Dairy Queen and Fruit of the Loom to railroad giant BNSF and its Berkshire Hathaway Energy utility company. CEO Warren Buffett has amassed one of the most impressive track records of market-beating returns in history, and Berkshire Hathaway has a reputation for safety and security as well as fine performance.

3. Coca-Cola

Coca-Cola (NYSE:KO) has been a leader in the beverage industry for more than a century, as its namesake sugary soft drink has spawned a global empire. Yet Coca-Cola has also proven that it can change with the times, and now the beverage leader has a much broader array of products including juices, sports drinks, bottled water, and soft drinks tailored for more health-conscious consumers. Rising dividends also make Coca-Cola stand out, with a streak of consecutive annual dividend payment increases that dates back to the early 1960s and has put it among the top 10 dividend stocks in the market.

4. Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) is well known for its popular consumer products, including baby shampoo, Band-Aids, and Tylenol pain reliever. But J&J is a true healthcare giant, making a wide array of medical devices to help doctors and other medical professionals perform life-saving procedures. Moreover, Johnson & Johnson has a vast pharmaceutical business, producing drugs like the arthritis treatment Remicade, prostate cancer fighter Zytiga, and psoriasis drug Stelara. With its huge scope, Johnson & Johnson makes a difference in the lives of millions of people worldwide.

5. Walt Disney

Walt Disney (NYSE:DIS) has an illustrious history, starting with its namesake creator’s disruptive innovations in the animation industry. Since the early 20th century, Disney has transformed itself into an overarching media and entertainment titan. Its movie studios have made massive acquisitions to become a driving force in Hollywood, but it has also built out its television business, which includes key assets like the ABC broadcast network and the ESPN sports franchise. Disney also has huge exposure to the travel industry, with its theme parks being landmark destinations for many vacationers and its cruise ships helping to introduce Disney fans to the seas. Add to that an extensive network of retail stores, and it's clear how Disney has mastered the art of touching its customers' lives in many different ways.

Bigger list of blue chips:

Investors actually have a sizable number of blue chip stocks to choose from. Here is a list of 20 other top blue chip stocks:

  • AT&T
  • AbbVie
  • 3M
  • Lockheed Martin
  • Enbridge
  • Procter & Gamble
  • JPMorgan Chase & Co.
  • Walmart
  • Microsoft
  • Caterpillar
  • UnitedHealth Group
  • Starbucks
  • Cisco Systems
  • Boeing
  • McDonald’s
  • Home Depot
  • Verizon Communications
  • Merck
  • Intel
  • Goldman Sachs Group

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Investing in blue chip companies' stocks

Blue chip stocks are smart investments for investors of all kinds. Beginner investors are likely familiar with the products and services of blue chip companies. Familiarity with a company makes stock buying more comfortable, and it’s exciting to become a partial owner of a business you know. Meanwhile, long-time investors will have seen blue chip stocks rise to the top over the long haul, outlasting their weaker rivals and finding ways to stay relevant and keep growing even as their industries change.

Hands-off investing with blue chip funds

Investors may also want to consider exchange traded funds (ETFs) and mutual funds that bundle multiple blue chip stocks into a single security. Blue chip funds offer an easy way to build diversified exposure to high-quality stocks, and these equities can be particularly good investment vehicles for people who are in or nearing retirement because they tend to be less volatile than individual stocks. Blue chip funds can also be a good fit for younger investors who are seeking the defensive advantages of diversification or who don’t have the time needed to adequately research individual stocks.

No matter how long you've invested, if you're a conservative investor, you can appreciate the stability and reliability that blue chip businesses give to their shareholders. Blue chip stocks often hold up better during dramatic downturns than their smaller rivals, and their investors tend to remain more confident about their long-term prospects than about those of less established businesses. Many of these companies pay substantial dividends and have payout growth streaks that have earned them a spot among the illustrious ranks of the Dividend Aristocrats and Dividend Kings.

Blue chips in a well-balanced portfolio

If you're looking for maximum growth in your stock investments, you'll also want to go beyond blue chip stocks to look at some up-and-coming small-cap stocks of innovative young companies that are seeking to disrupt their larger rivals. These high-growth upstarts aim to be the blue chip stocks of tomorrow.

However, just about every investor can benefit from having a portion of their portfolio invested in blue chip stocks. It doesn't have to be a set percentage, as different investors will have different viewpoints about how much risk they want to assume. The more you want to preserve and protect the money you have invested in the stock market, however, the more attractive blue chip stocks will be as you try to meet your objectives and reach your long-term financial goals.

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